Changes in the operating environment pose a challenge to the strategy, but how do you know when it is time to react?
The company’s operating environment is constantly changing. Technological developments, geopolitical tensions, regulation, customer behaviour, changes in the competitive landscape and economic trends all influence the environment in which companies make their strategic decisions.
This is hardly likely to come as a surprise to any manager.
A more difficult question is, what changes in the operating environment mean specifically for our business. It is even more difficult to recognise when a change is so significant that it should influence our decisions.
A strategy is always based on assumptions about the future
Everyone’s strategy Underlying this is a set of assumptions about the future, even if they have never been explicitly stated.
We make assumptions about how our market will develop. How customers’ needs will change. What our competitors are doing. How quickly a particular technology will develop or become widespread. How regulation will change. What skills will be needed in the future.
Based on these assumptions, we make our strategic decisions and investments today.
A problem arises if the operating environment changes from what was anticipated, but our strategy does not. The strategy may still appear entirely sensible on paper. However, its underlying assumptions may no longer reflect the world in which the company operates.
That is why one of the most important tasks of monitoring the operating environment is to help us ask the following question on an ongoing basis: Are the assumptions underlying our strategy still valid?
Monitoring the operating environment alone is not enough
In most companies, the business environment is already being monitored in one way or another. Information is gathered from the market, competitors are monitored, customers are listened to, and various reports, forecasts and analyses are studied.
Nevertheless, simply being aware of what is happening around them is not enough to help a company reinvent itself.
Monitoring the operating environment should form a chain:
What’s changing → What does this mean for us → What should we do?
The first question relates to observation. Which technological, economic, social, political or other developments are relevant to us? What is happening in the market right now, and what signs of change can be seen on the horizon based on these?
The second question is often more difficult. What does the observed change mean specifically for our business? What new opportunities does it open up? What risks arise? Are our customers’ needs, the competitive landscape or the sources of our competitive advantage changing? Does this development challenge any key assumptions underlying our strategy?
The third question ultimately determines whether monitoring generates business value: what do we do with this insight?
It is essential to recognise the signs of change in good time
Most management teams know their own market well. That is why, when monitoring the operating environment, it can be easy to say: ‘Yes, we know what’s happening in the market.’.
We probably do know.
However, from the perspective of changes in the operating environment, a more interesting question is: What can’t we see yet?
If a company merely monitors current developments in its own market, many significant changes will only become apparent once they are already evident in customer behaviour, competitors’ activities or key business indicators.
By then, the change will already be taking place.
In forecasting We therefore also turn our attention to the drivers behind this change and the first signs of it. How might ongoing technological developments affect customer behaviour? In what direction is regulation evolving, and what sort of growth opportunities does this development create? What is happening in terms of technological development? How might geopolitical changes affect value chains, costs or markets?
The aim is not to predict exactly what will happen next. The aim is to realise early enough that something may be about to change.
Effective monitoring of the operating environment is reflected in decisions
Ultimately, the success of monitoring the operating environment should not be measured solely by how comprehensive the organisation’s situational awareness is.
An equally important question is: Has the understanding gained from the operating environment brought about any changes?
At its best, it can lead to the identification of new growth opportunities, bringing forward investment, building new expertise, reducing risk or shifting strategic priorities. Sometimes, however, new information reinforces the view that the current direction is still the right one.
Not all changes in the operating environment therefore require a response. The key is to be able to distinguish meaningful changes from noise and to make an informed decision on how to respond to them.
Indeed, the most significant benefit of strategic foresight is timely decision-making. It gives an organisation more time to assess options, seize opportunities and prepare for risks before they become apparent to everyone else.
When something changes, what else should change?
Changes in the operating environment are inevitable. However, a company does not need to try to predict everything that will happen in the future. It must identify which changes are relevant to it, understand their potential impacts and incorporate this understanding into its decision-making.
Director's The most interesting question from this perspective is: When something changes in our operating environment, how do we know what aspects of our operations should change as a result?
